Initially, and at this stage in a relatively quick, cautious and simple way, we need to expand revenue and reduce expenditures. There are two choices on the revenue side. Allow Bush tax cuts to expire for top two percent of earners and stop that from occurring for bottom 98 percent. An alternative may be to establish a minimum tax for all tax payers with an income in excess of $250,000 before deductions are taken. In general, the more money a tax payer makes the more effort that is taken by tax accountants to reduce gross income to a lower net income before taxes are paid. Indeed if the Bush tax cuts are eliminated for the top two percent of wage earners, there’s a chance this group will pay even less in taxes, as their tax accountants will work harder to find the additional loop holes. A minimum tax for this group would be a way to effectively limit deductions without having an unnecessarily complex argument about which deductions to limit. Ultimately the top two percent of wage earners and their tax accountants may find their way around this, but it may take them a while. The Congress could find their way to a solution on the revenue side based on these two alternatives in fairly quick order. Then, based on the actual collection of revenues for fiscal 2013, agree to review the issue once again in 2014. If revenues are inadequate then a review would be necessary. If revenues for 2014 exceed 2012 revenues by 100 billion or more then no revenue review will take place, but if revenues are reduced or stay the same, then Congress will reveiw the matter.
In the area of expenditures, the Congress should cut subsidies by an average of 10 percent. Congress may want to increase or create some new subsidies, but if they do they will need to reduce some existing subsidies by more than 10 percent.
Congress should also agree to either cut or adjust collections from current workers on so-called entitlement programs for each of the next ten years so as to extend their lifetime, and do this beginning in 2013. Currently the Congress should make only small adjustments that they have already discussed and and can easily agree to do. As the Affordable Care Act (so called Obamacare) is implemented over the next several years, additional savings will either be implemented or they will accelerate costs at current or higher levels. If costs are in fact accelerated the Congress may need to make yearly offsetting adjustments in excess of what is now anticipated. Social Security discussions can be put off until 2013 or even 2014 as the program is solvent and can be discussed later after more important matters are attended to.
Finally, additional Defense Department cuts can be made consistent with long term adjustments anticipated in and already subject to long term planning by the Department. Part of these adjustments can be considered in the context of anticipated lower force levels in Afghanistan as we more toward those reductions in 2013-2014. Longer term reassessment can be planned for implementation for later in the decade.
A total reduction of expenditure of less than $250 billion in 2013 would require a harder look at reduction of expenditures for further reductions in 2014-2015. However, if we were to add $100 billion in revenue in 2013 and reduce expenditures by $250 billion in 2013 and continued to do that for a decade, that would reduce added net debt by about $3 trillion. If, as anticipated, new economic growth allow us to grow revenue resulting in something like 20 billion in added revenue per year at the outset and at something on the order of 50 billion per year toward the end of the decade, that would take an additional 350 billion off net accumulated debt, reducing it by a third over what might otherwise be anticipated. Additional net increases in revenue and/or reductions in expenditures through yearly review as noted previously can allow us to further cut down on effectively on net accumulated debt such that in the following decade with appropriate fiscal planning we can bring yearly budgets into balance and finally begin the long process of paying down the debt.
It is critical for the Congress to establish a long term steady set of fiscal policies for the next 10-20 years. This can create confidence in the budgetary system of the government that could allow expansion of the economy in the form of new jobs and expanded consumer confidence. There will be many job losses in many areas due to automation, as well as artificially intelligent systems and robotics. Provided these are offset by new job creation we will expand the economy. If we cannot vast sections of the populace will begin to live lives quite different from those we see at present.